It's boom time in the Bakken. In July, North Dakota oil production -- driven in large part by the Bakken and emerging Three Forks formations -- exceeded 874,000 barrels per day. Five years ago, most investors had never heard of it. And the numbers are impressive. 

Last quarter, Continental Resources (CLR), Bakken production grew 65% year over year to 89,000 bpd. The company aims to grow output anther 30% in 2014. 

Costs are falling as well. Year to date, average well completion costs at EOG Resources (EOG -0.49%) have fallen by 6% to $9.5 million per well. That's a pretty substantial cost savings when multiplied over the 53 net wells the company expects to drill in the Bakken this year.

Yet in spite of these encouraging developments, there are still two risks that could stop surging profits at Bakken producers.

Looming light oil glut
In recent years refineries spent billions refitting their plants with catalytic crackers, coking units, and hydrocrackers in anticipation of the coming wave of heavy sour crude oil. The assumption in the industry was that light sweet crude from conventional wells was running out and would be replaced by heavy varieties from the Canadian and Venezuelan oil sands. 

But much to the surprise of industry analysts, that theory hasn't played out. Surging light oil production from the Bakken, Permian Basin, and the Eagle Ford is overwhelming refining capacity.

At the moment, the hasn't been a concern for Bakken producers. U.S. light oil production is only displacing African imports, which run at about 650,000 bpd. But with a half dozen new pipelines expected to be completed over the next 18 months all directing light oil to the Gulf, the surging supply of light oil could put downward pressure on prices. 

Think of African imports as a relief valve. As long as refiners are still importing light oil supplies, Bakken producers can continue to command world oil prices. But once these imports are completely displaced, U.S. producers will have to compete against one another. This will have an obvious impact on the top line.

Crackdown on fracking
September saw the some big attempts by lawmakers to regulate hydraulic fracturing. 

The Obama Administration, in partnership with the Bureau of Land Management, has proposed new regulations on the practice. Legislation would set standards for well integrity and managing polluted water that flows back to the surface. And while the regulation only applies to federal lands, the administration is hoping that this law serves as a model for state regulators on private lands. According to a report by API, these additional regulations could cost the industry as much as $2.7 billion per year. 

Again this month, California passed tough new regulations on fracking activities within the state. The law establishes additional transparency requirements and environmental protections. Energy companies will have to notify nearby landowners of their plans and disclose their fracking fluid 'cocktails.' Operators will also have to obtain a general fracking permit and permission before using hydrofluoric acid and other chemicals while drilling. 

Granted, California is far from North Dakota both geographically and on the political spectrum. But shifting public sentiment against fracking could slow or stifle Bakken growth. 

Foolish bottom line
In spite of these risks, the Bakken is still one of the best investment opportunities in the oil patch today. The formation's production has exceeded Wall Street's wildest expectations. The exploration of the Three Forks play, which sits directly underneath the Bakken, could boost reserve figures for regional operators as it's derisked. But a looming light oil glut and new regulations pose a real threat and are things investors should keep an eye on.